I talk about how I would use one millions dollars if it were just to show up for me to use however I please.
I always find it a good exercise for me to look at how I would hypothetically spend an unexpected windfall. It is a fun exercise for the short time going through it, because I get to see the freedom that it could afford me if it were to happen. It also helps me to prioritize better how to go about paying off debt, investing for the future and saving.
Decision One: Keep my job.
I would definitely NOT quit my job. I would continue to work, since I love my job and a million is not enough to pay for college for my kids and for my retirement. On the other hand, if you do not like your job, you can look for another job with much less stress.
Decision Two: Pay off all outstanding debt.
I would get rid of all of my debt, including my home loan. Loans restrict your freedom, so getting out of debt will give you many more options and opportunities.
Decision Three: Put 18 months of living expenses into a savings account.
I would want to make sure that I have sufficient money set aside for emergencies. I think an eighteen month emergency fund is sufficient.
Decision Four: Buy something frivolous .
I need to enjoy my windfall, so I would go out and buy something frivolous. I won’t go hogwild, but spending a thousand dollars on something that I want would definitely feel good.
Decision Five: Max out retirement accounts.
I want to make sure that I max out all of my tax advantaged retirment accounts like our 401(k) or 403(b) accounts and our Roth IRA accounts. In my case it would be four accounts, since both my wife and I work.
Decision Six: Put aside money for college.
My goal is to pay for my kids college, so that they do not need to take loans and will graduate debt free. My state gives a tax credit up to $1,000 yearly for money set aside for college, so I would make sure that I take advantage of that yearly.
Decision Seven: Set aside money for repairs and large purchases
I would set aside enough money for another car or large home repair, if I knew that they would be coming up in the near future.
Decision Eight: Open a Vanguard Charitable Fund Account
I would put $100,000 into a Vanguard Charitable Fund account to fund more philanthropy on a yearly basis. As time goes on, I can even add more to the account. At the beginning I would have about $4,000 to $5,000 to allocate to my favorite charities.
Decision Nine: Invest the rest for growth and income.
I want to make sure that I do not outlast the windfall, so investing it to me makes the most sense. I would try to get a monthly income that would help offset any other living expenses I have, make my life a little easier and help me to save even a little bit more.
Published in: Personal Finance